Development Programme
Public Investment Planning
over 10-15 years
Development Programme 2006-2009Public Investment
This report is the third in the “Development Programme”.
The first volume presented the “Vision for Development” over a 10-15 years horizon. It set the institutional and economic framework and defined the methodology for planning and programming.
The second volume presented the sectoral policies, in line with the “Vision” after an extensive dialogue with the concerned ministries.
This third volume translates the general methodology and the sectoral policies into a program of actions and projects.
The report includes six chapters
- Definitions and methodology
- The Sectors Perspective
- The Projects Perspective
- The Financial and Fiscal Perspective
- Objectives, constraints and trade offs
- Recommendations and further actions
The technical annex presents the actual and the targeted situation for each of the various sectors with a description of the needed projects and actions
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Development Programme 2006-2009Public Investment
- Definitions and methodology
In order to make the best profit of this document and to be able to criticize it and perfect it, it is necessary to abide by precise definitions of the concepts it utilizes and to understand the methodology it follows.
Complete information about the definitions and the methodology can be found in the first volume.
A brief reminder is presented below.
1.1A functional definition of projects
1.1.1Définition du «Projet» et du «Programme»
The central concept is that of project:
«A project is a set of activities that provide, in a sustainable way, a defined target of beneficiaries with defined benefits”.
This definition implies that:
Investment is only one possible component of a project
A project deals with “defined benefits”and “defined target of beneficiaries”; it encompasses necessarily all the downstream activities to reach the end user; the physical component is only one link in the chain.
This definition is different from that commonly used:
Many “projects” are nothing more than activities linked to the scope of a contract.
Almost all of the «projects» are restricted to the initial physical investment.
Once the concept of «project» is agreed upon, we get to some derivative definitions:
A «bundle» of projects is an integrated set of projects that give the same «target group of beneficiaries» a set of complementary «benefits».
A «campaign» of projects is a uniform set of similar projects that give to different «target groups of beneficiaries» similar «benefits».
A «cluster» of projects is a connex set of projects that share, in a complementary or competitive way, the same equipments or resources; there benefits and target groups can show variable degree of similitude.
«Bundles», «campaigns» and “clusters” of projects need «programming»
1.1.2Définition des «Secteurs» et «Sous-secteurs»
The definition of sectors and sub-sectors derives from the same approach, it is related to the final service provided.
A sub-sector is the set of physical and human resources organized in order to produce and/or supply a defined final service. A sector is a set of sub-sectors the supplied services of which are similar or associated.
This means that a sector cannot be defined on the basis of the use of a given natural resource (water for instance) or of a multifunctional physical equipment (like roads).
1.2A global apparaisal of the performance of sectors
The starting point will not be the list of projects available in the Ministries for two main reasons:
Very important projects can be absent from the list and will be absent from the program.
It is necessary to give each project some form of rating that allows for prioritization. This implies that the costs and benefits of each project are independent from the realization of other projects or from the general level of equipment in their sector. This supposition is obviously wrong.
The method starts from the definition of a target sectoral situation in terms of stock of equipment and of institutional setup, at a horizon of 10-15 years.The comparison of the present and the target situation allows for a consistent understanding of the sectoral policies.
Once the target situation agreed upon, the projects emerge as representing steps on the path from the present to the target situation.
1.3An economic understanding of the constraints
1.3.1The usual form of the financial constraint
In the usual approach, the main constraint used in programming public investment is financial and takes the form of an annual ceiling on public capital expenditure.
The sustainability of public debt being a permanent concern, fiscal simulations are regularly produced. It appears from their comparison that the «acceptable» level of capital expenditure and, more specifically, of capital expenditure that is «locally» financed (since external financing is supposed exogenous and stable) is the most volatile among all the fiscal items, demonstrating that capital expenditure is looked at as a residual and is probably the most exposed to budgetary cuts as it appears from international experience.
1.3.2Limits of the financial approach
Capital expenses should not be subjected to volatile constraints. Being spread over several years and considering what the global stock of equipment implies in terms of maintenance and operations, they should normally be very stable.
Subjecting capital expenditure to tight or volatile constraints is not efficient since it is always possible to substitute current expenditure (through outsourcing or leasing or BOTs) for capital expenditure or to postpone expenses or charging unconsolidated public entities.
Putting too much emphasis on the difference between external and domestic financing is misleading. The more the ratio of operation and maintenance costs to investment cost is high, the more linking priority of projects to the availability of external financing becomes dangerous because it induces an increased need for internal financing or a significant loss in production.
1.3.3The economic approach as the time dimension
The most important point pertains to a common misunderstanding of both sides of the inequality that is usually used to express the financial constraint; the misunderstanding pertains to the economic meaning and to the temporal validity:
By nature, investment expenditure have two specificities:
They cover only a small part of a long string of cash-flows that are negative for a short period in the beginning and that should turn positive for a long period afterwards;
They necessarily imply a annex series of expenses for maintenance and operation that appear under current expenses.
The idea of “financial ceiling” is of little use since the sustainability of public debt is a matter of economic solvency that makes sense on the long term and not a matter of liquidity on the short term.
Both for investment and for sustainability, what is at stake is the quest for long term equilibria and for convergence paths towards these equilibria rather than for static accounting figures.
Two consequences stem from there:
- The appraisal of the justification of an investment expenditure ought to be economic and long term. This implies the respect of the following conditions°:
A high efficiency of expenditure on equipment but also on the maintenance and operations of the built and existing equipment.
The recuperation through fees or taxes of a significant part of the benefits of the projects so as to fully cover their cost;
A sufficient level of economic return for the «project» and not for the sole «investment», at the level of the whole economy and secondly for public finance.
- The economic approach does not necessarily solve the financial question.
In Lebanon, the financial constraint is generally not tight and since the needs af the Government are huge, the marginal impact, positively or negatively, of capital expenditure is quite limited.
In general terms, the financial constraint should apply not to capital expenditure but to the sum of expenditure on equipment, maintenance and operation.
Because of this duality between the economic and financial dimensions, it is important to look at «non market” financing (mainly multilateral and bilateral) as efficient countercyclical instruments to correct and overcome financial disturbances.
1.3.4The joint management of the economic and financial constraint
The starting point is simple. If any expenditure were to be financed by borrowing, it is primarily capital expenditure. Such a financing is natural because expenditure is concentrated in time while returns are delayed and persistent. It is necessary because relying on taxes would make the present generation pay for benefits that future generations will pick.
It happens that the only category of expenditure that is economically justified to financed through borrowing is the most subjected to financial constraints.
A recent study on the subject states[1]:
“It is not acceptable to attribute the entire cost of an investment project to a single year's accounts. Investment implies future returns: its cost should thus be distributed over time as those returns accrue.
Public investment is worthwhile from a social point of view although its net financial rate of return may be lower than the financing cost, which in turn is expected to be smaller than the social rate of return on government projects”
As a result, “all public investment projects with a sufficiently high social rate of return should be implemented. This is what the modified rule allows, since it eliminates cash constraints. So should all private investment, with a sufficiently high private rate of return”.
1.4A nested and sliding process of planning
In the same way as planning and programming actions aim at anticipating time to come, they must evolve with time. Nothing is worse than the absence of planning but plans that remains unchanged with time.
Time dimension is present twice in the process of planning: in the delay for effect and in the delay for maturation.
One of the most serious handicaps on planning in Lebanon stems from the negative effect due to the similitude between the successive lists of priority projects. This similitude is, to a large extent, the consequence of the short span of programming (3 to 5 years). Over three years, very little change can be expected because the delay of maturation of projects is longer than the horizon of programming.
The process of planning and programming ought to be nested and sliding/
Nested in the sense that the time horizons of programming are many (yearly for budgeting, 3 to 5 years for programming, 10 to 15 years dor planning and 25 to 30 years for prospective), accuracy being higher for the shorter spans.
And sliding in the sense that the various levels of planning and programming ought to be reviewed and corrected on a regular basis, in the view of actual evolutions.
1.4.1Long term planning: The physical Master Plan (Schémad’Aménagementdu TerritoireLibanais)25 – 30 years
The SDATL draws the synthesis of long term trends (physical, demographic, etc.), it defines basic choices in terms of land use, urban skeleton and structuring equipment. It constrains the action of Ministries and restrains the margins of sectoral policies so as to ensure their consistency.
1.4.2Medium term planning: vision over 10-15 years
The “planning vision” is inspired from the SDATL, it expresses allocative and redistributive choices of the State (both socially and spatially), explicits sectoral policies and defines equipment programs and institutional changes.
The 10-15 years delay corresponds to the necessary time to cover the complete cycle of important projects ou programs.
The “planning vision” constrains programming actions. Its production gives the opportunity to review the SDATL.
1.4.3Programming: 3 5 years
Programming over 3 to 5 years is inspired from medium term planning, it defines projects tio be implemented, to be reviewed or to be cancelled. It precises the operational procedures and quantifies the means needed.
It should be noted that the margin of variation is limited at the level of infrastructure realizations because the delay of maturation of such endeavors generally exceed the span of programming. But it is decisive for launching or amending longer term projects and institutional changes.
It defines the framework of the annual budgeting process that encompasses expenditure on equipment, maintenance and operation.Its production gives the opportunity to review the “planning vision”.
1.4.4Budgeting: year by year
Budgeting is inspired by programming. It is the annual exercise through which previsions of expenditure translate into authorizations.
Ils production gives the opportunity to review the “program”.
The present document covers in the same time the medium term planning (over 10 to 15 years and we conventionally adopted 12 years as a reference) and the programming (3 to 5 years and conventionally adopted 4 years as a reference). The 12 years span has been divided into there periods of 4 years each.
Note that for certain sectors, the speed of technological change is such that planning cannot reasonably exceed the 4 years horizon, this is the case of telecoms.
- The sectors Perspective
2.1Sectors and sector autonomous production entities (SAPE))
The appraisal of the present and desired situation of sectors in a systematic and consistent way needs to be carried at the same scale at which the service is produced and provided.
In this perspective, the various sectors show one of the four following patterns:
Open networks,
Pavings,
Star-type networks
Nodal points
For each of those configurations, “sub sector autonomous production entities” (SAPE) can be defined and adopted. Electricity , for instance, is an open network and the whole country belongs to the same SAPE while Primary Health Care Centers (PHC) have a limited radius of influence and the service that each center provides has little to do with the service that another center provides (or does not provide).
Sectors are also operated by different agencies: the Ministries (Government), Municipalities and various autonomous public entities:
Sector / Remarks / Agency / ConfigurationWastewater / Not storm water / Water Authorities / Star-type networks
Water Supply / Water Authorities / Star-type networks
Irrigation / Water Authorities / Star-type networks
Electricity / EdL / Open networks
Telecommunications / Telecom / Open networks
Health Schemes / Services bought from the private / Government / Open networks
Hospitals / Government / Pavings
Pharmaceuticals / Government
PHC / Government / Pavings
Education Schemes / Services bought from the private / Government / Open networks
Pre-school / Government / Pavings
General education / Government / Pavings
Vocational education / Government / Pavings
University / Government / Pavings
Natural and Regional Parks / Government / Pavings
General Government Services / Government / Open networks
Roads / Main network / Government / Open networks
Rail / OCFTC / Open networks
Maritime / Government / Nodal points
Air / Government / Nodal points
Economic Activity Zones / Government / Pavings
Urban extensions / Including local networks / Municipalities / Pavings
Solid Waste / Municipalities / Pavings
For each SAPE in each sub-sector, a specific sheet has been produced. The sheets are presented in annex.
For simplicity very small SAPEs (like those related to PHC for instance) have been amalgamated in one sheet per large geographic zone (Greater Beirut, Rest of Mount Lebanon, North, South and Bekaa).
The list of SAPEs is the following
Waste water / Health1 / Waste Water National / 31 / Health Schemes
2 / Waste Water G Beirut and Mount Lebanon / 32 / Hospitals
3 / Waste Water North / 33 / Pharmaceuticals
4 / Waste Water South / 34 / Primary Health Care
5 / Waste Water Bekaa / Education
Water / 35 / Education Schemes
6 / Water Reg-Nat / 36 / Pre-school
7 / Water Greater Beirut / 37 / General Education
Water Mount Lebanon / 38 / University
8 / Water Barouk / 39 / Vocational education
9 / Water Metn / 40 / Natural and Regional Parks
10 / Water Kesrwan / General Government Services
11 / Water Jbeil / 41 / Civil Services
Water North / 42 / Security Services
12 / Water Qbayyat / Transportation
13 / Water Tripoli / 43 / Individual uses of roads
14 / Water Akkar / 44 / Collective uses of roads
15 / Water Batroun / 45 / Rail
16 / Water Koura / 46 / Maritime
17 / Water Zgharta / 47 / Air
18 / Water Minieh / Land Development
19 / Water Bcharré / Economic Activity Zones
Water South / 48 / Economic Activity Zones Bekaa
20 / Water Jabal Amel / 49 / Economic Activity Zones South
21 / Water Nabee El-Tasseh / Urban extensions
22 / Water Tyr / 50 / Urban Extensions Greater Beirut
23 / Water Saida / 51 / Urban Extensions Mount Lebanon
Water Bekaa / 52 / Urban Extensions North
24 / Water Baalback-Hermel / 53 / Urban Extensions South
25 / Water Zahlé / 54 / Urban Extensions Bekaa
26 / Water Chamsine / Solid Waste
27 / Irrigation / 55 / Solid Waste GBA and Mount Lebanon
28 / Electricity / 56 / Solid Waste North
Telecommunications / 57 / Solid Waste South
29 / Fixed lines telecommunications / 58 / Solid Waste Bekaa
30 / Wireless telecommunications
2.2The synthetic sheet of facts
The following table has been used to represent the situation of all the Sector Autonomous Production Entities (SAPEs). This uniformity is an essential feature because it allows for a systematic treatment of sectoral policies.
Sector / Population(2003)Sub-Sector / Technically Autonomous Unit / Population(2003)
Component / Present Situation / Target Situatio / Projects / Characteristics / Priority
Technical
Constraints / Cost / Impact / Uncertainty
Geographic area / Sp / St / ∆S / Remarks / Description / Min. delay to start (Year) / Min. constr. Period (Year) / Investment Mil US$ / Land value / expro. % / Yearly maintenance cost % / Major rehab/replac. cost % / Span for rehab./replc / Yearly operation cost % / Uncertainty
Physical Stock
Institutional Setup
Economic values:
Investment
Land value / expropriation
Yearly maintenance cost
Major rehab/replac. cost
Span for rehab/replc
Yearly operation cost
Yearly revenues
Performance Indicators:
Results
Means
The sheet organizes information into three categories:
General information (in pink)
Information on the sectoral level (columns in yellow)
Information on projects (rows in blue)
The intersection of columns and rows describes the existing and targeted process of supply of the service related to the SAPE.
The following table presents the terms that appear in the sheet with basic explanatory comments:
Term / CommentsGeneral information
Sector:
Sub-Sector / Technically Autonomous Unit
Population(2005) / Population served by the SAPE, as per the ACS estimates in 1996 with extrapolation (it might be different from the population living in the neighborhood of the premises)
Population (2020) / Population served by the SAPE, as per SDATL calculations
Information onSAPE
Present Situation (Sp) / The column describes the present situation of the SAPE
Target Situation (St) / The column describes the targeted situation of the SAPE
Projects (∆S) / Projects defined as consistent actions that lead from Sp to St
Physical Stock / Stock of available or targeted equipment described along the chain of production/supply of the service
Institutional Setup / Human and institutional resources
Economic values:
Investment (Mil$) (a) / Economic value of the physical stock of equipment (mios $)
Land value / expropriation / Value of land used by the SAPE (mios $)
Yearly maintenance cost
Major rehab/replac. cost / Cost of replacement of equipment
Span for rehab/replc / Number years for replacing equipment
Cost of inputs / Cost of inputs for production of services or cost of purchase of services for provision
Yearly operation cost
Yearly revenues / Revenues related to the provision of the service
Performance Indicators:
Results / Quantitative indicators of the quantity and quality of the service provided
Means / Quantitative indicators of the means used for the production of the service
Information on Projects
Characteristics
Technical Constraints
Description / Project identification
Min. delay to start (Year) / Minimal period to launch project (antecedents, feasibility, etc.)
Min. construc. Period (year) / Minimal period for execution studies, works, training , etc.
Cost
Investment Mios USD / Non recurring expenses including studies, training, etc.
Land value / expropriation% / As percentage of Investment Cost
Yearly maintenance cost % / As percentage of Investment Cost
Major rehab/replac. cost % / As percentage of Investment Cost
Span for rehab./replacement
Yearly operation cost % / As percentage of Investment Cost
Uncertainty / Level of uncertainty on estimates of cost
Impact
Uncertainty / Level of uncertainty on estimates of impact
Priority / 1, 2 or 3 for each successive three periods of 4 years
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